Last updated 4 years ago
A perpetuity is an infinite stream of cash flows of identical magnitude and equal spacing in time.
E.g., Perpetuities, consol bonds
PV of Perpetuity = CFR\frac{CF}{R}RCF
Again, this formula assumes that the first cash flow occurs at t=1.
How much do you have to save now to be able to withdraw $100 at the end of each year, forever, if you earn 5% per annum?
PV = 1000.05\frac{100}{0.05}0.05100 = $2000